Fundamental Outlook for US Dollar: Neutral

-US NFPs disappoints and risk tumbles; but the dollar still can’t find safe haven traction
-Without support from growth and interest rates, risk trends becomes even more important for the dollar
-Both EURUSD and GBPUSD climb to new heights as the market begins to question momentum

The opportunity to spark a seemingly overdue dollar reversal was missed this past week. With the dollar index plunging to four month lows, the man of the majors found themselves on the cusp of the next major phase of anti-greenback trends and the perfect catalyst for establishing direction and momentum. It is not a stretch to say that the currency had already spent a significant portion of its premium in the reversal of the past two months; so it would be relatively easy to interpret the release as bullish for the dollar regardless of the outcome. Should the data impress, it could be construed as evidence that the US economy will outpace its global counterparts. Alternatively, a disappointment would be a reminder that the global economy is in fact slowing and risk aversion would bolster the greenback’s safe haven status. In fact, we would see the later scenario play out and an immediate drop in risk-based assets; and yet the dollar would tumble alongside the benchmark equity indexes.

Technically, the failed response to the data can be attributed to the notion that the market will defer from jump starting a major trend before liquidity drains on the weekend (this would explain why there was neither a major reversal nor significant extension of the existing bear trend). However, the fundamental explanation falls to the reality that Friday’s NFPs would simply not redefine the outlook for US economic activity or underlying speculative interests. In fact, the indicator was not far from the estimates that were offered heading into the event; and it does little to alter the expectations that economic activity in the world’s largest economy is slowing. That being said, we head into the coming week looking for an event that can define risk appetite. Considering the range of event risk that has crossed the wires in previous weeks, it is clear that there are few events that can meet such a job. In fact, the most likely drivers for the dollar (as a safe haven) aren’t found on the US docket. A deterioration in China’s financial health, a poor showing in European growth data that revives regional default fears or just a growing wave of speculative outflows can revive the demand for a safe haven. In comparison, building confidence will continue to be a gradual process.

That being said, we must still make note of the listings on the economic docket for both short-term volatility impact and the long-term alteration of growth expectations that it could have. Instead of ranking the indicators in order of market influence, it is better to establish expectations per session. Friday’s schedule has the greatest potential to impact fundamental expectations; but the proximity to the weekend will help dampen the reaction to surprises. Both the retail sales data and University of Michigan consumer confidence survey will be used to assess the spending habits of the American consumer – the biggest driver of activity in the world’s largest economy. The CPI reading is notable in its own right; but the currently level poses little threat of altering monetary policy in the near future. Speaking of policy, the FOMC rate decision on Tuesday should not deviate far from trend. That being said, a mention of abnormal policy shifts could shape speculation. Also noteworthy are the NFIB small business confidence reading and monthly budget statement.

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